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Realty Companies Dilute Promoters’ Holding to Raise Funds
| May 20, 2008 |  (Be the first to rate this story!) Loading ... |
Construction companies have resorted to expansion of equity base, and subsequent dilution of promoters’ stake, to meet their financing needs. As per an ETIG study of 50 firms in the sector, which have disclosed their shareholding for March’08, close to 15 firms reported expansion of equity base over last year. If we take a longer period of five years, around 20 companies have diluted their stake, which include big players like Jaiprakash Associates, Nagarjuna construction and IVRCL infrastructure.
Among the big players, promoter’s stake in Jaiprakash Associates has declined to 44.58%, as a result of expansion of equity base to Rs 234 crore in March ’08. Similarly, for Nagarjuna Construction, the stake has declined to 22.5% on March ’08. Nagarjuna has been diluting its stake for the last five years; in March 03, promoter holding was as high as 48.2%. The company’s equity base has increased to Rs. 45.75 crore in March ’08 from 9.45 crore in March ’03.
An interesting feature of the dilution has been that most large players have managed to get good valuation due to booming markets. In most cases, promoter holding has come down due to conversion of securities into equity by preferential shareholders and also due to private placement of shares to PE players.
Further, companies had also issues FCCB to raise money from the market for long-term requirement. The need for dilution comes due to largely negative cash flow from operations, which puts pressure on companies to infuse funds from other sources. The negative cash flow from operations is because of delay in payment, long gestation period, investment in fixed assets like equipment, and so on. Further, investment in SPVs for various BOT projects have also led to significant increase in capital requirement for the companies. Promoter of small construction player like Tantia Construction and Kalindee Rail Nirman have also diluted their stake. Few companies such as Noida Toll Bridge and Era construction have witnessed a hike in promoter holding.
News Published Under: Real Estate India, Banking and Finance, Real Estate Companies |
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